The groundbreaking ceremony of the Tesla Shanghai Gigafactory.
Reuters

Elon Musk on Monday kicked off the construction of Tesla's new $2 billion factory in China, which he says will be ready as soon as this summer.

A factory on Chinese soil may help Musk avoid retaliatory tariffs imposed in the US-China trade war.

Tesla in October said it was accelerating construction because tariffs as high as 40% were making it uncompetitive in China.

Since then, a temporary truce has brought rates back to 15% — but that expires on March 1, and it is unclear where they will end up. A Chinese base would shelter Tesla against potential future tariff hikes.

Musk on Twitter on Monday said that the factory would make Tesla's Model 3 and that the Model S and the Model X would still be built in Tesla's two US factories.

Elon Musk has kicked off construction of his new Tesla Gigafactory in Shanghai, a project that could help him avoid tariffs on cars that have recently been inflamed by President Donald Trump's trade war with China.

Musk gave a speech at the site of the planned $2 billion factory in the Lingang district of Shanghai at about 3 p.m. local time (2 a.m. ET) on Monday.

The new factory, first announced in July, could be a remedy to problems operating in China, which Tesla attributed partly to President Donald Trump's trade war. Musk said the factory would be finished by the end of 2019 and might be ready in some capacity as soon as this summer.

The site of the new Tesla factory. Reuters

In October, Tesla said tariffs imposed by China to counter those made by Trump "resulted in an import tariff rate of 40% on Tesla vehicles versus 15% for other imported cars in China."

It additionally cited "headwinds we have been facing from the ongoing trade tensions between the US and China" as a problem.

Any cost savings for Tesla will depend on what the tariff regime is when production begins.

It will also hinge on the precise details of the supply chain. For example, Tesla components made in the US and then shipped to the Shanghai factory for assembly would still most likely face some kind of tariff.

Nonetheless, Tesla has previously said the factory will help it deal with the tariff problem. In the October statement, Tesla said it would accelerate construction as a response to the trade problems.

Tesla also has Gigafactories in Nevada's Storey County and in Buffalo, New York.

The Shanghai factory would double the size of the electric-car maker's global manufacturing, Reuters said.

Tesla has also registered a financial leasing company in China with $30 million registered in capital, Reuters reported. This will allow it to speed up "leasing and consultancy" contracts to get the factory up and running.

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